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HQ 555580


April 2, 1990

CLA-2 CO:R:C:V 555580 LS

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.80

Mr. John W. Cain
Cain Customs Brokers, Inc.
421 Texano
P.O. Box 150
Hidalgo, Texas 78557

RE: Applicability of partial duty exemption under subheading 9802.00.80, HTSUS, to guide shoes imported from Mexico

Dear Mr. Cain:

This is in response to your letter of January 6, 1990, requesting a ruling on the applicability of subheading 9802.00.80, Harmonized Tariff Schedule of the United States (HTSUS), to guide shoes to be imported from Mexico. Diagrams and literature regarding the product were submitted.

FACTS:

3D Border Industries is planning to import guide shoes on behalf of Halliburton Services. A guide shoe is a part used in oil well cementing equipment. It fits onto the end of a string of pipe casing after a well has been drilled. The guide shoe is designed to direct the casing away from ledges to minimize sidewall caving and to guide the casing through hard shoulders and crooked holes.

The components of the guide shoe are a premachined metal cylinder and concrete, both of U.S. origin. In a telephone conversation with an attorney on my staff, you have stated that the inside of the metal cylinder is threaded on one end and that this threading is necessary to make the cylinder ready for the assembly of the guide shoe. The threading allows the completed guide shoe to be fitted onto the bottom of the first joint of pipe casing. Under the first fact situation you presented, the threading operation occurs in the U.S. before the metal cylinder is shipped to Mexico. Under an alternative set of facts, the threading occurs in Mexico after the cylinder is exported from the U.S. and before the assembly of the guide shoe begins. The concrete mix, which is exported from the U.S. in sacks, consists of class "C" cement, "20-40 mesh" sand, a friction reducer, and an air-entraining agent.

The assembly process in Mexico consists of the following steps. First, the premachined metal cylinder is degreased with a soap and water mixture. It is then placed into a mold and transported to the pouring station. The concrete is mixed with water and poured into the cylinder in the mold. The filled mold is placed on a vibrating conveyor belt to expel air. The concrete then cures at room temperature. Next, the guide shoe is taken out of the mold and excess concrete is removed with a wire brush. The mold is cleaned and prepared for reuse. The guide shoe is then painted with waterbase red paint which is for purposes of rust protection when the guide shoes are stored outside. Finally, the painted guide shoes are allowed to dry and are packaged for shipping.

ISSUE:

(1) Whether the guide shoes, consisting of concrete and a metal cylinder threaded in the U.S., will qualify for the partial duty exemption under subheading 9802.00.80, HTSUS, when returned to the U.S.?

(2) Whether the guide shoes, consisting of concrete and a metal cylinder threaded in Mexico, will qualify for the partial duty exemption under subheading 9802.00.80, HTSUS, when returned to the U.S.?

LAW AND ANALYSIS:

Subheading 9802.00.80, HTSUS, provides a partial duty exemption for:

[a]rticles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process such as cleaning, lubricating and painting.

All three requirements of subheading 9802.00.80, HTSUS, must be satisfied before a component may receive a duty allowance. An article entered under subheading 9802.00.80, HTSUS, is subject to duty upon the full value of the imported assembled article, less the cost or value of the U.S. components, upon compliance with the documentary requirements of section 10.24, Customs Regulations (19 CFR 10.24).

I. Guide shoes in which the metal cylinder component is threaded in the U.S.

We must first determine whether the concrete and the metal cylinder threaded in the U.S. are "fabricated components, the product of the U.S." Fabricated components subject to the duty exemption are provided for at 19 CFR 10.14(a), which states, in part, that:

[t]he components must be in condition ready for assembly without further fabrication at the time of their exportation from the United States to qualify for the exemption. . . . Materials undefined in final dimensions and shapes, which are cut into specific shapes or patterns abroad are not considered fabricated components.

The legislative history of this tariff provision makes it clear that the exemption applies to U.S.-made fabricated components which are of types designed to be fitted together with other components, and does not apply to chemical products, food ingredients, liquids, gases, powders, etc. H.R. Rep. No. 342, 89th Cong., 1st Sess. 49 (1965).

The concrete mix consists primarily of cement and sand in a powder or granular form. Thus, according to the legislative history, the concrete mix is a material expressly precluded from the benefits of subheading 9802.00.80, HTSUS. See Headquarters Ruling Letter 555057 (March 15, 1990) (crushed diamonds, in granular form, constitute a powder within meaning of tariff provision and are not entitled to exemption). Further, it is not exported in condition ready for assembly since it must first be mixed with water in Mexico before it can enter into the assembly operation.

The metal cylinder which is threaded in the U.S. constitutes a "fabricated component, the product of the U.S.," as it is exported in a condition ready for assembly within the meaning of clause (a) of subheading 9802.00.80, HTSUS. You have informed us that the cylinder must be threaded in order to be in a condition ready for assembly.

For purposes of subheading 9802.00.80, HTSUS, the term "assembly" means the fitting or joining together of fabricated solid components. 19 CFR 10.16(a); C.J. Tower & Sons of Buffalo, Inc. v. United States, 62 Cust. Ct. 643, C.D. 3840, 304 F. Supp. 1187 (1969). Section 10.16(a), Customs Regulations (19 CFR 10.16(a)), further provides:

The mixing or combining of liquids, gases, chemicals, food ingredients, and amorphous solids with each other or with solid components is not regarded as an assembly.

However, the courts have held that this language of 19 CFR 10.16(a), requires only that a component be a solid upon completion of the assembly process. See C.J. Tower; Sigma Instruments, Inc. v. United States, 5 CIT 90, 565 F. Supp. 1036 (1983), aff'd, 2 CAFC 24, 724 F.2d 930 (1984). "[N]othing in the statute [or 19 CFR 10.16(a)] requires that whether a component is a solid be determined as of the instant of initial contact." Sigma, 724 F.2d at 931-932.

In Sigma, U.S. terminal pins were incorporated into header assemblies by a transfer molding operation in Mexico. A molding compound, exported to Mexico in rope form, was heated and transformed into a viscous state before being joined to the terminal pins. At the completion of the transfer molding operation, the molding compound had substantially assumed a definitive solidification, size, and shape. Through this process the terminal pins became permanently fixed in their designed configuration and spacing so that they could perform their intended function as electrical relays. The court, relying upon C.J. Tower, found that the transfer molding operation constituted a permissible assembly within the purview of subheading 9802.00.80, HTSUS, and that Customs should have granted an allowance in duty for the terminal pins.

Applying the rule in C.J. Tower and Sigma, we find that the combined processes of pouring the concrete into the metal cylinder in a mold, vibrating the mold to expel air, curing the concrete at room temperature, and removing the resulting guide shoe from the mold, constitute an acceptable assembly operation for purposes of subheading 9802.00.80, HTSUS. Although the concrete is in a viscous state when it first comes into contact with the metal cylinder, it becomes a solid upon completion of the combined assembly process. Thus, the process results in the permanent joinder of two solids--the concrete and the metal cylinder--and constitutes an acceptable assembly operation.

Section 10.14(a), Customs Regulations (19 CFR 10.14(a)), further provides, in part, that:

Components will not lose their entitlement to the exemption by being subjected to operations incidental to the assembly either before, during, or after their assembly with other components.

Operations incidental to the assembly process are not considered further fabrication operations, as they are of a minor nature and cannot always be provided for in advance of the assembly operation. 19 CFR 10.16(a). Examples of operations considered incidental to the assembly process are delineated at 19 CFR 10.16(b). However, any significant process, operation, or treatment whose primary purpose is the fabrication, completion, or physical or chemical improvement of a component precludes the application of the exemption under subheading 9802.00.80, HTSUS. See 19 CFR 10.16(c).

Among the examples of operations incidental to the assembly process which are listed in 19 CFR 10.16(b) are: cleaning; removal of grease; and the application of preservative paints or coatings. Thus, the following operations which relate to the assembly of the guide shoes are considered operations incidental to the assembly process: the preparatory step of degreasing the metal cylinder with a soap and water mixture; the cleaning of the mold after the assembly process; and the spray painting of the guide shoe after the assembly for purposes of rust protection.

With respect to the packing prior to shipping, section 10.16(f), Customs Regulations (19 CFR 10.16(f)), provides, in part, that an assembled article which otherwise qualifies for the exemption under subheading 9802.00.80, HTSUS, will not be disqualified by reason of having been packaged abroad.

We find that the guide shoes which include as a component metal cylinders exported from the U.S. already threaded are eligible for the partial duty exemption under subheading 9802.00.80, HTSUS. The threaded metal cylinder is a fabricated component of U.S. origin which is in a condition ready for assembly without further fabrication, does not lose its physical identity in the assembly operation, and is not otherwise advanced in value or improved in condition except by assembly operations and operations incidental thereto. However, as explained above, no allowance may be made under subheading 9802.00.80, HTSUS, for the cost or value of the concrete mix.

II. Guide shoes in which the metal cylinder component is threaded in Mexico prior to assembly

We next consider the alternative facts you have presented in which the unthreaded metal cylinder is exported from the U.S. and threaded in Mexico prior to being joined with the concrete. Regarding the concrete mix, we apply the same analysis set forth in Part I and find that it is precluded from the benefit of subheading 9802.00.80, HTSUS.

The metal cylinder which is unthreaded when exported from the U.S. does not satisfy clause (a) of subheading 9802.00.80, HTSUS, because it is not "in condition ready for assembly without further fabrication." As stated in the facts above, the threading is necessary in order to allow the completed guide shoe to be attached to the bottom of the first joint of the pipe casing. Therefore, the metal cylinder is not ready for assembly into the guide shoe until it is threaded.

Whether a particular foreign process constitutes "further fabrication" within the meaning of subheading 9802.00.80, HTSUS, depends upon the facts of the particular case. Zwicker Knitting Mills v. United States, 82 Cust. Ct. 34, C.D. 4786, 469 F. Supp. 727 (1979), aff'd, 67 CCPA 37, C.A.D. 1240, 613 F.2d 295 (1980). In Samsonite Corp. v. United States, 12 CIT ___, 702 F. Supp. 908 (1988), aff'd, 8 Fed Cir. ___, 889 F.2d 1074 (1989), straight strips of U.S. steel were exported to be assembled into luggage bags. Once abroad, the strips were bent by machine into a form analogous to a square-sided letter C and subjected to other operations prior to being assembled into the luggage bags. Since the straight strips of steel could not be placed immediately into the assembly of the luggage bags without the bending operation, the court found that they were not exported in condition ready for assembly. The court noted that, without the bending operation, the original strips as exported could not serve their ultimate function as part of the frame of the luggage. Thus, the bending and shaping of the steel strips was a fabrication, within the meaning of subheading 9802.00.80, HTSUS. Similarly, in the instant case, the process of cutting threads inside the metal cylinder in Mexico constitutes a further fabrication because, absent the threading, the metal cylinder could not serve its function of allowing the guide shoe to be attached to the pipe. Thus, the unthreaded metal cylinder is an incomplete component as exported.

Since neither the metal cylinder nor the concrete mix meets the requirements of clause (a) of subheading 9802.00.80, HTSUS, we find that the guide shoe is not eligible for the partial duty exemption under subheading 9802.00.80, HTSUS, when returned to the U.S.

HOLDING:

The guide shoes, consisting of concrete and a metal cylinder threaded in the U.S., will be eligible for the partial duty
exemption under subheading 9802.00.80, HTSUS, when returned to the U.S., upon compliance with the documentary requirements of 19 CFR 10.24. The processes performed in Mexico on the metal cylinder and concrete are considered acceptable assembly operations or operations incidental to the assembly process. An allowance in duty is permitted for the cost or value of the metal cylinder which is a U.S. component exported in condition ready for assembly. However, no allowance may be made for the cost or value of the concrete mix because it is not a fabricated component of a type designed to be fitted together with other components.

The guide shoes, consisting of concrete and a metal cylinder which is unthreaded when exported from the U.S. and then threaded in Mexico prior to assembly, are not eligible for the partial duty exemption under subheading 9802.00.80, HTSUS, when returned to the U.S. The unthreaded metal cylinder is not exported in a condition ready for assembly without further fabrication. For the reason stated above, the concrete mix is also not a fabricated component subject to the exemption.

Sincerely,

John Durant, Director
Commercial Rulings Division

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